Concern over credit score is a major reason people are afraid of bankruptcy. There are a number of myths and misconceptions that you may hear from people or have read on the internet about how bankruptcy can ruin your credit for life. These myths prevent good people from getting the help they need. In this article, we’re going to dispel those myths.
How much does your credit score go down after bankruptcy?
More often than not, debtors report an INCREASE in their credit score after filing for bankruptcy. How can this be possible? For starters, most people who file for bankruptcy already have a low credit score. Most people consider filing for bankruptcy after already missing payments or maxing out credit cards. These are two heavily weighted factors in credit scores. After a bankruptcy, these debts are discharged and your credit score improves. Moreover, your debt-to-income (DTI) ratio will almost invariably improve. DTI is another factor lenders use in determining your credit.
Not convinced? Let’s look at the data. In March of 2018, LendingTree, an online loan marketplace, released a study of the effect of a bankruptcy filing on the future ability to borrow. The study clearly evidenced that bankruptcy does not sentence an individual to low credit scores. More importantly, there’s no indication that people in the aftermath of a bankruptcy will have a harder time accessing credit than their peers who did not file for bankruptcy. Moreover, the study showed that some people had had a 740 credit score within a year of filing bankruptcy!
The speed at which you rebuild your credit also depends on the guidance you receive after filing a bankruptcy. That’s why we don’t abandon you after you get your bankruptcy discharge. We stick with you to provide free credit education to help you rebuild your credit.
Is debt consolidation or bankruptcy better for your credit?
Your credit will almost always suffer more from debt settlement than from bankruptcy. We actually discuss this in more detail in our review of debt consolidation vs. bankruptcy. You may think that you are saving your credit by using debt consolidation rather than bankruptcy, but you are usually doing more harm than good.
Debt consolidation keeps a number of derogatory remarks and late payments on your credit report while bankruptcy removes them. Debt settlement creates more derogatory remarks on your credit report. Each time you settle a debt, this becomes a negative hit to your credit.
If you considering whether you should pursue debt consolidation or bankruptcy, you aren’t doing yourself any favors by choosing debt consolidation. You’re only hurting your credit score.
How long is bankruptcy on your credit report?
A Chapter 7 bankruptcy stays on your credit report for 10 years. A Chapter 13 bankruptcy stays on your credit report for 7 years after discharge (10-12 years normally). Here’s where the myth comes in. Just because a bankruptcy has been reported to your credit report, that does not mean that your credit is ruined forever. The effect of the bankruptcy on your credit report is widely exaggerated. My clients begin rebuilding credit after bankruptcy very quickly.
Ok, but what if I want a car or a house? Surely a bankruptcy will prevent me from getting a car or house, right? Wrong.
How long after bankruptcy until I can get a car loan?
Most people don’t believe me, but my Chapter 7 clients can usually get a car the day we file the bankruptcy. That is not a joke or an exaggeration. The ability to get a car loan was important to my clients for a few reasons:
- First, many Chapter 7 debtors have cars with high interest rates or cars that are unreliable. They need a way to get rid of those cars to get better ones.
- Second, getting a car loan helps you rebuild your credit quickly. All of your loans will be removed from your credit report after a Chapter 7 filing. Adding an installment loan like a car loan can really boost your score quickly.
Knowing this was important to my clients lead me to find companies that will work with people who recently filed bankruptcy. Now, if my clients have income, it’s generally not a problem for them to get a car loan even the day they file the Chapter 7 bankruptcy.
In a Chapter 13 bankruptcy, it’s only a slightly longer road. You will need to have your Chapter 13 Plan confirmed before we can get you a car loan. That normally takes about 4-6 months after filing. After that, these same companies will loan to someone in an active Chapter 13 bankruptcy without a problem.
So how long after bankruptcy until you can get a car loan? It could be the same day. Don’t let the myths about credit stop you from getting the debt relief you deserve.
Does filing a bankruptcy hurt my interest rate?
Not necessarily. The woman in this recording filed bankruptcy. After completing “7 Steps to a 720 Credit Score,” she got a better car loan than her daughter, who didn’t have a bankruptcy on her credit.
Just for good measure, here’s two more:
“I filed bankruptcy and was paying $594 per month on a used car…it was horrible. I followed these techniques and six months later I bought a new car with a $277 a month payment at 4.5% interest. I was BLOWN AWAY!” – Sheri
“I have benefited by following this advice. Seven months after my bankruptcy I purchased a Ford F150 with a 9.99% interest rate and the dealer said I could trade it in for a 3% loan in one year. Thank you!” – Gary
This is an example of what can happen to you. Keep this in mind: you can’t start rebuilding your life, until you take the first step.
How long after bankruptcy until I can get a mortgage?
Ok so I can get a car loan, but there’s no way I can get a mortgage, right? Wrong again. Normally, it takes about 2-3 years to get a mortgage, but we’ve certainly better results than that. We have had clients get a mortgage during an active Chapter 13 bankruptcy and have had clients get a mortgage shortly after a Chapter 7 discharge.
Need more proof? This short audio is about a guy who filed bankruptcy and two-years and two-days later, bought a brand new home for his family with a 3.25% interest rate. Yes, the bankruptcy was still on his credit report.
Two years and two days after filing bankruptcy, I ended up closing on a brand new home with 5% down and a 3.25% interest rate. We never thought that we’d be able to buy a home this quickly, thank you for teaching us how to rebuild our lives after bankruptcy. – Travis
These clients are not necessarily the norm, but it goes to show that the myths surround credit after bankruptcy are greatly exaggerated. Many times, income is a more important factor in lending than credit score. If you can afford the payments, it’s much easier to get the mortgage.
Getting started with our office
My law firm can file your bankruptcy, stop garnishment, prevent foreclosure, and help you get rid of your debt—we can do all of that, for sure. But if that is all we did, we would be leaving you stranded, which I’m not going to do. I’m committed to making sure that my clients have a future that is bigger than their past. Our clients choose us to handle their bankruptcy because we offer so much more than bankruptcy services. At ARM Lawyers, we do more than simply help you eliminate your debt. We will work with you to rebuild your credit score after bankruptcy!
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.